Putin promises economic reform, but does little

Advertising

Saint Petersburg (AFP)

From President Vladimir Putin down, Russian officials have long agreed the country's economy needs to reform or risk prolonged stagnation as it edges out of the longest recession in 20 years.

But nine months ahead of a presidential election he looks set to contest and win, it remains to be seen if Putin will ever make good on repeated pledges to overhaul the country's creaking economy.

- Why reform? -

The economic model that saw high energy prices fuel meteoric growth during Putin's first two terms in power from 2000 to 2008 has run its course.

Now, relying on Russia's vast oil and gas supplies is no longer enough.

Even before the drop in oil prices and sanctions over Ukraine sparked the latest crisis in 2014, growth had already slumped.

In a recent study French credit insurer Coface cited "a shortage of manpower" and "the lack of investment" as the "major impediments" to diversifying the economy.

In December Putin warned lawmakers that growth risks "remaining stuck at around zero for years."

- Which reforms? -

Putin has enlisted two respected figures to come up with competing reform plans covering the next presidential term from 2018 to 2024.

Former finance minister Alexei Kudrin, a proponent of budgetary rigour, is calling for more money to be spent on education -- instead of the current vast spending on the military -- and an overhaul of the overweening judiciary and bureaucracy.

Meanwhile business figurehead Boris Titov argues the government needs to loosen its purse strings and start spending in a bid to bolster growth.

At the moment the government is sticking to a cautious track: cutting spending and keeping interest rates high in a bid to curb inflation without tackling the underlying structural issues.

Officials are trying to maintain a competitive edge for Russian firms caused by the fall in the ruble by attempting to stop the currency climbing back up too high and funding a cut in companies' social benefits contributions through raising VAT.

- Empty words? -

Despite Putin's repeated insistence each year at Russia's showcase Saint Petersburg economic forum that the country will liberalise, there have been few signs the Kremlin boss is willing to make good on those words.

Instead, under the former KGB officer the role of state giants has grown and the reliance on energy supplies remains as strong as ever.

Now as Russia has edged out of recession and oil prices have recovered at least partially, some fear there will be even less incentive for the Kremlin to make changes.

Analyst Andrei Kolesnikov from the Carnegie Center said that Putin might take something from the reform plans put forward by Kudrin and Titov but cautioned there won't be "radical change."

"No attempt at authoritarian modernisation of the economy decided from on high has ever worked out," he said.

"There is no reason to believe that things will be different now, given that Russia is in a worse place."